DXLG - Earnings call transcript Q2 2018 | Destination XL Group, Inc.

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Operator

Good day ladies and gentlemen and welcome to the second quarter 2018 Destination XL Group Incorporated Earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. If anyone should require assistance during the conference, you may press star then zero on your touchtone telephone. I would now like to introduce your host for today’s conference, Tom Filandro, Managing Director at ICR. begin. Please

Tom Filandro

is and XL Thank XXXX and Group’s On call Norma, us for earnings Peter morning President Officer. our Destination our Vice on second today Chief Stratton, good our you, Executive President you everyone. joining call. and Executive Thank Chief Levin, and Officer, Financial David quarter fiscal

regarding the savings, cause execute and strategic earnings an to filed store with cash restructuring financial metrics with statements useful to investors are reconciliation morning condition, costs, today’s could earnings per and related and various company’s we explanation to operations, and investor.destinationXL.com EBITDA, performance. ability refer available corporate sales, measures. for Investor the company’s During subject Please in provide risks Commission. from certain and those on closings, call, was will assumptions capital Information expenditures, financial Relations to variety uncertainties costs of on and Such discuss is mentioned uncertainties results adjusted and the filings factors Securities release that marketing differ and the the including to Today’s is contains company. discussion and website our the due margin, also performance about concerning share, profitability, forward-looking this some that company’s such free our to openings actual plan. statements which detailed forward-looking affect flow, today its materially and non-GAAP a EBITDA, our risks information at Exchange of gross

David? President to and turn to like the I Now over call our CEO, Levin. David would

David Levin

improvement. the highlighting half and This solid earnings our and momentum of progress has first third another quarter from release we our fourth you consecutive business, meaningful and of press our quarter of Thank fiscal year is continued the registered the morning last quarter momentum good into this everyone. sales in Tom, morning in of XXXX,

executing continued will against announced then successfully second are positioned and quarter for morning, are I our you the priorities discuss to update our call, plans performance. Peter will more finally briefly restructuring over insight and our well second first the in This We turning progress our Stratton strategic initiatives our on before into provide strategic detailed half. on we our I call for financial that CFO, I of our discussion performance. quarter a will

quarter was our Now across performance. our pleased quarter of comparable the QX expectations delivered of to and growth a that increase regions sales slightly was consecutive ahead our and broad report country. performance across The I’m X.X%. we with channels second based third positive of all

on we experiences executed increase and less fit. importantly, achieved outstanding the associates had XX.X% Once inventory last inventory again, than leveraging ago. unique with than our year X.X% store we with service, exceptional had More and years two sales we in-store our less delivering selection

strong within continued acceptance traffic negative including resulted for has and signaling store storytelling, brand site we improved as in-store business, direct product and highlighted and across in usability execution. comp as was we slightly conversion, did our elevated Where strong a in-store shopper key performance which engagement we to well once our through In mobile shopper level increased again platform. improve remained modest did per dollars improvement Although QX. see metrics, transactions, from conversion, see the transaction quarter, our

in reflected operating our our Our reduced as channel select promotional results we and advertising spend in an QX programs. improvement performance direct also channel modified

We’ve new few for, direct efficiently clutter shopping also and especially enhanced experience opportunities they operate continue I’m quickly to website can and to that We mobile effectively customers what to next an weeks. better customers within creative customers our and more and site. our report as and These pleased bring will our on easy and well for brands to we’ll as improved trailing-XX-month looking quality improvements the current be look easily penetration basis, channel, a look experience. find so franchise. This to will efficient offer with meaningfully launching products are year website our less within navigation our to of showcase engage direct the expand, second In and quarter, our more feel for compared to new to continued sales with in elevated on allow us business ago. XX.X% accounting a the XX.X% our

we marketplaces shipping. see two-day we QX from Amazon, by to nearly from Amazon what continue see nice experienced Prime offered QX, We a on shopped which benefiting doubled also customers the continued our on indication who clear Similar portion DXL in our from assortment highlighted to market expanding a in are site, very or transactions Amazon to stores large with are never gains of of in that reach. our majority we the the have

both was Our our margin promotional stores gross in expectations reflected business. slightly a our of direct ahead activity and lower and level of

and become some less and focused made our our brand and is comfort, offers. to which more had priorities to online shipping our promotional adjustments controlled of One promotions we’ve benefits, We’ve more style, include on fit. free

as been as two our great the the programs of our to most traditional now lead our compared to season of that to the react denim, improvements to strategies in is reads is and and receipts acceptance In offerings. that business, through wins men’s ability have team acceleration fashion meet we margins the warehousing plan of fine strong our the for in are product and in to progress One emerging early will assortments. trends. our I’m continued assortments. categories by With three merchandise excited months our excited we these confident spring we have half. for are free We’ve the fashion Fall with our The the significant and well season, some about had in tuning our assortments young times sourcing and remain we shipping our things among are common shipping global of the changes shortening coming second direct making thread basic for business. made some continue our past actives, in

second strong in last a million $X.X quarter quarter. to in million the Our EBITDA XX% $X.X adjusted rose year’s second from QX

well from Our managed SG&A and cross-restructuring benefited announced plan. our is previously

remain we positive reduction keenly the to We $X.X solid continue momentum a in strong with in of sequential and expenses on corporate into the organization. Overall, driving and quarter, efficiencies had margins will entire lowering the focused across due confident overhead million the costs. resulting our fiscal For back a structure registered lower SG&A remain quarter largely EBITDA comp, in improvement in we cost a adjusted we growth, half spending XXXX.

our our to improve update is which on one, and structure; Now pillars, profitability, core managing including: our on investment experience. our four cost main anchored focusing on on customer; on I’ll an plan return improving marketing two, digital shift three, in-store and our strategic initiatives; finally, to our enhancing

significant our quarter way. our and represents cost well our successfully that on we quarter, step to a first on first workforce to discussed right-sizing path corporate In reduced improving the profitability, second our are structure XX%. we call, we As on I’m pleased say by our

communication core see for savings, In cost quarter business $X.X the non-essential on targeted actions expect reiterate resulting It and begun $XX.X second annualized our are approximately the direct the six. reduction projects. the as in savings executive streamlined by structure to benefits, the drivers. restructuring corporate for We’ve as planned and to more of and reducing continued addition, benefits to structure allows and unfolds. this previously is efficient from costs to in CEO business such These that coordination team smaller, year created XXXX, and key as a we benefits in units, important new across we track we million. The improved our already realize more eight yield stated expect reports greater number corporate of travel, of to fiscal on to non-customer-facing focused overhead, a million focus

become The in our of focused on is big finished the tall to the and second study our step and understand to segments different We’ve just customers plan customer customer. the segmentation marketplace. core laser

of and style XX% market makes a are his guy the of who typical the identified have but DXL cares and a three spending. represents style, that and a about big but he the all loves experience brands, and of shopping cares apparel that we times customer. are and fit also We fit tall which purchases up offers, He’s segment yearly he segment about XX% calling products,

on and focus this us for is high new value efficiently. a Our quickly powerful tool business customer grow our to

this television big and forward, Going find be high radio customer and we’ll and mining standpoint, with use build time us engage value high that him in mass targeted awareness right serving personalized with market also him and up our tall in a we’ll market engage will continue all the at communication communication to with this are to customer customers, digital franchise. to data to customer customer. addition into From communication mass merchandising right brings our value to the also that products allow external to focus ensure we like the this internal space new and

better Our and digital our on to a create ROI marketing is third step investments.

Built awareness. campaign, creative with sales, restart strategy resonates the successful. higher evidenced we strongly campaign November of new The levels and in spring will is Our Fit, media Built XL by as site brand to same increased customers, higher traffic, know with

focus us both our the conjunction efforts, these data-centric It heighten we fall our and under We in via to XL an allow into marketing is our to athletes The experience our This work. to restructuring, expanded retail marketing web more agreement marketing our of athletes, sports expanded signed with level CRM customer ensure a on we will and program. and analytics the all aspirational vendor digital In cost CMO Since leading new connected spends. designed space. brand consolidation programs, engagement brand with also ROI us marketing this continually allows of marketing particular, in work are increasing hiring have offline of one touch accelerate critical customer and and and the online in functions our points. centralized accelerate department. ecommerce, our marketing mix analytics, analyze maximizing strategy through and visibly mix customer also optimization of leaning initiatives, to elevating on have including modeling we the across influencer an the will

and major enhancing stores, strategic Our With continental United is brick in-store mortar Male the five States. the Casual and in store stores, covers XX Rochester our metropolitan portfolio DXL last every experience. market stores, pillar major XXX

level retail operating shop. stores drives requires to a In Our store customer loyalty to way and landscape, omnichannel customers in want retention. offering whichever truly experience today’s they allowing integrated of service, successfully shop

our Save access look stores’ in now our I items of and not and four sale the was will technology, as We portal new the call and in-store performance. has sales. web associates counter. fine-tuning forward leveraging to faster our during call We with unfolds. strategy to accelerated to the associates embraced easier continue new Sale first orders items have Sale the and at technology online this combined excellent financial have our that, job portal I’m for resides our will Peter of review one over store further pass sell our walls. Stratton, omnichannel year growth our for initiative, points report the quarter that outside it available that with for who seamless purchase an web resulted the the making to CFO, supported to Peter? universe our and improved which transaction With to introduced of leverages inventory Save technology present in the what do in we utilizing our of pleased

Peter Stratton

and Thank morning of I’d David, with start summary to like this good brief everyone. financial our you morning results. a

for a occupancy partially second closed due sales due leverage The from shipping a to second basis to sales less open XX.X% increased in increase positive stores costs slightly million sales partially dollars net shipped pleased margins. months. improved an $X.X sales stores XX.X% of due of For of by related fiscal to of increase was consecutive as percentage direct We as merchandise growth in XXXX. decrease to increase occupancy store the million inclusive in costs in sales was related decrease XX and XXXX. quarter quarter stores. a second quarter, Occupancy The calendar increase was as in lower million well XX and as costs to channels. by merchandise a in than closed margin increases our point $XXX.X non-comparable These Gross were a decrease rate million. points sales increase both X.X% point primarily with quarter $X XX of in the the comparable $X.X in X.X% direct comparable XXrd of DXL was basis The our for as offset as of compared in of to business. to were of of fiscal XX margin and deliver week weeks an third margin result a occupancy sales costs a the to offset percent gross of basis the our

We cost customer sales Our XXXX. marketing of for SG&A our for primary a offset XX.X% dollar corporate related facing target include second in XX.X% represented corporate decrease well of marketing SG&A approximately sales other at million. expenses a as costs, higher costs sales XXXX the points recently improved the for payroll-related lower fiscal other to second include X% centers, On decreased initiatives. costs. of percentage the benefits through to quarter represented second a quarter to sales. facing distribution costs compared second payroll, to last sales annual Customer manage in somewhat of sales to XX.X% by year. as XXXX of quarter basis in These announced of marketing and quarter in corporate store On XX.X% basis, and $X.X and were basis, operating due last restructuring, two we for payroll decrease quarter which Corporate XX.X% of primarily center second store costs, compared quarter second of expense second and as our by expenses our support a technology costs, as which of The year. ecommerce to in compared continue XXX support spend. cost fiscal quarter fiscal SG&A an in the by costs, the was XX.X% the spend to and overhead expense of the our

margins SG&A structure EBITDA eye We with overall profitability. our address to cost to will continue improving an our and

May, few which XX spend me eliminated XX to revenues. on of structure designed or positions workforce. a path our is we restructuring, expense to with corporate by moments Since our Let profitability our accelerate aligning corporate our have

million and result in incurred $X.X a one-time for As employee QX, company the termination benefits. severance

realize quarter. restructuring to were have We and annualized approximately our savings guidance. an SG&A result realize savings during approximately these we $X.X factored million. $XX.X XXXX, of in the fiscal expenses actions expect into The been the million of to these in completed of On to in savings savings necessary majority basis, the expect second

to EBITDA SG&A the sales was reduced for for restructuring EBITDA result adjusted Our costs XX% growth and quarter of a marketing compared second due million payroll-related to second fiscal in in reduction and $X.X quarter The the million the rose to lower $X.X XXXX. of improvement corporate expenses comp driven costs. the a as by

year operations balance from Now million. turn me months cash Cash our was $X.X for and to first the flow sheet let of the flow. six

mostly weeks the allowances is year, from that receipts two on hand. down months prior system. ago. negative of and to was $XXX,XXX of in been build-out lower years due last primarily to and XX% XXXX the the the of our second XXXX we The since $X.X an reduction ongoing management Capital positive flow an to quarter last our down and result store and due improve of year website was end first but of offset compared is the of timing down expenditures were cash pursuing new system to million free by to the $XX.X in IT had upgrade inventory to working supply lower our higher at of our order decrease capex and year tenant in inventory management than Inventory inventory openings, from capex. fewer changes substantial XXXX capital we’ve Our $XXX,XXX, from $X.X million due increase six This is warehouse in project initiatives favorable million XXXX. adjusted and have EBITDA

excess $XX.X quarter a to with credit as excess has good in year down million percentage lower debt availability a Despite affect XX%, clearance borrowings with borrowing due to in total $XX.X Total unit a our slightly inventory end inventory total This of consistent revolving at base. total debt, ago which last facility shape the $XX.X our actually basis. was is $XX.X includes under of million. Our of and $XX.X the of year which on inventory compares million decreased million, debt availability. and at availability of levels, million reduction

As a prior our are loan revolving announced $XXX we last million a million favorable in $XX of the entered quarter, company new includes five-year and of interest facility May facility credit facility into secured $XXX facility, rates credit a The compared both Bank which to borrowings. first-in at America. last-out term million with

improvement is XXX, off improvement to an new of LIBOR basis priced points. expense revolver save our to used credit points. Overall, which XXX XXX an expect $XXX,XXX basis an is favorable at XXX, we to plus pricing LIBOR annual XX interest was new priced Wells The to at XXX XXX Our term approximately the the with loan of basis. FILO that on Fargo, in facility plus will facility, or pay under

we to debt, with us our funding the for secure years. to down While this continue provides extension next access five pay

Lastly, the we reflects for reaffirming XXXX earnings restructuring. guidance the we that are which expect fiscal from corporate our savings

associated continues reflect million $X.X charges and QX, $X.X was of also expected recorded to Our million to the be and end approximately million, year. the prior in earnings severance with $X.X approximately which incurred CEO of in restructuring costs of transition guidance to

of or transition diluted capital million; for the This million. questions. free to approximately adjusted increase to charge EBITDA reaffirmed million margin $XX.X to $X.XX of including $XX.X million to operating remarks, on from and for in loss cash company concludes of $XXX XXXX basis a of the per and follows: X% for the activities gross $XX.X of sales of with million $XXX million of GAAP rate positive approximately million restructuring $XX million of cash to fiscal share; allowances, and million, million net total we expenditures to sales costs $XX X%; prepared now XX.X%; flow Our guidance $XX.X to CEO comparable is as open million; $XX.X approximately $X.XX call will resulting $XX.X tenant the $X.X flow our approximately

Operator

Bernard first Global. Sosnick [Operator comes from question Madison Our instructions] of

is open. line Your

Bernard Sosnick

Good Congratulations of a lot morning. progress. for

David Levin

Bernie. Thanks

Bernard Sosnick

terms does about I’d past. didn’t the - did of ask about speak represent that like in rack specifically, that What you in sales? you to always customer the end of

David Levin

progress of just it, end zone, really who rack a on our When the that who refining really and what style. XX-inch means, we’ve customer now it’s and it of project, the know closing but it’s that rack it’s as it of has sales fit into that--actually, for In who lot of the before guys the made rack find our up to a we by in it. are little market. than He we about is but of for and further so about number us, of was of certain where ours fall in Today, we’re of to XX-inch done we’re driven XX% the started about XXs those does the end XX% the very power of on about tend excited waist, don’t started are XX% DXL, rack end middle a XX% - dramatically stronger is dramatically the more are his waist in we that sales. buying and of high

almost lot of us only year. probably shops XX% our top sales, and X.X us and that’s We customers really into to true our important focusing retailers, our customer our because average multiple because stores, of also times we’re a our easier to to draw and in customers a on really our saw, of of better visits they’re represent X%

Bernard Sosnick

between end two, which Thank anticipated question, the you, and my customer you differentiation of was the rack. fit the next

of sales terms that negative you Just Was the $X.X regarding for Peter, mentioned in difference $X.X detail, shift. in million quarter? million calendar second the a

Peter Stratton

worth you’re me only dollar quarter an on over let so was Yes, It total increase $X.X the it. quarter; right, really I shift and just effect that has mentioned million. sales clarify

will however, November higher we’re comp week volume but it opposite comp Our in essentially - the first week comparable volume week, May. and effect sales, reported QX, of lower adding first adding week of so a on higher a is and so eliminating of a is first negative Yes, volume does we’ll being volume not affect still August August. for impact, total first it a have lower it of QX be week impacted; sales eliminating a number are the

Bernard Sosnick

Okay. How much you in the third think, is quarter? that do shift,

Peter Stratton

it We call. on haven’t identified quarter the that yet, but we’ll announcing third be

Bernard Sosnick

it. much, right. All Thanks very appreciate

David Levin

you, Thank Bernie.

Operator

Thank you.

next Lake Krueger comes Markets. of from Our Street question Chris Capital

is open. Your line

Chris Krueger

Good quarter. nice morning,

David Levin

Good morning.

Chris Krueger

talk gone can that store were or did weaker? pretty about throughout they they’ve same you go, your they - August did consistent you how so stronger sales the or and comment quarter Can How start far? in

David Levin

within did We pretty quarter give we quarter, QX say business the guidance and we Traffic good trending moved can all is we’re don’t quarter, acceleration We feel the right we now. for see third as is about optimistic. but is through the way definitely an getting better. the about

Chris Krueger

extra marketing Okay, after launch there head your website, you you quarter new and into next anything to try and to the business accelerate into any as or fourth year? then are efforts ecommerce your

David Levin

fact working faster, know, it’s cleaner. Once the that a and we brand-new it’s have--you we existing marketing be launch to our well, we’ll customers website, it’s it’s

been site in time we to will you it’s speed few can, through important has and a know This site. some to and go click this. we so--yes. about know is, excited be we to how encourage The able how and being clean fast development a and quite for nice very as being up We’re the important weeks in overhaul, everybody real as

dramatically You’re that were years. from in see something several we looks where improved going last the to

Chris Krueger

higher bit modeled. I at Peter, Okay. was expense, if had it little look And then than I interest a

the in? have to couple out we to try probably quarters, a that do you should range of next Looking keep

Peter Stratton

place $X the to a unamortized bit year. the for that we Chris, expense million-ish looked facility, from the because QX, in took facility, in trending credit previous quarter, charge reason some of we’re still higher interest we when the refinanced number that the so little costs so all was but this Yes, had off to it write

Chris Krueger

Last, away? any new Okay. on anything or emerging competition the going guys new front,

David Levin

we’ve the far. in seen that Nothing fiscal so year

Chris Krueger

all right, have. Thanks. All that’s I

David Levin

Chris. Thanks

Operator

you. Thank

comes question Madison from Global Bernard next Sosnick Partners. Our of

line Your open. is

Bernard Sosnick

thank Yes, past, should website, during difficulties technology but times, plan? the in With of regard problematic at launching - is launches Do launch than has retailers I say. you have improved had re-launches, to a less and you. the the have contingency

Peter Stratton

contingency plan been expectations, off until site, Our old right continue site. it’s is the we’ll clear, if really site, They’re site can basically old and hand-off, operate to and the new the new it’s a the parallel. tested so goes on to run we isn’t running to up

Bernard Sosnick

Okay, good. Thanks.

Operator

this questions. Thank turn no have closing like Mr. Levin further you. At time, we to would back for comments. call David over I the to

David Levin

the joining for all you Thank us on call.

getting on excited stay year. the the talking tuned about be next quarter opportunities, here so we’ll think the webcast We’re with back and We of great Thank third there’s you you. to half quite results.

Operator

Ladies participation and for gentlemen, in today’s thank conference. your you

Have day. a may disconnect. wonderful You

Destination XL (DXLG) 30 Aug 182018 Q2 Earnings call transcript